Ferenczi says the idea for EnergyTag came from looking at the UK’s Renewable Energy Guarantees of Origin (REGO) scheme, which issues certificates to renewable generators for each unit of power they produce that can then be sold to suppliers or large energy users to back up their claims over the source of the power they sell or consume.
The UK was required to create REGO under an EU directive, which mandated that all member states must have a Guarantees of Origin scheme, but many other countries around the world also have similar programmes. Ferenczi says they have some “slightly differences” but they “all broadly work in the same way.”
They all aim to solve the challenge of how to enable consumers to choose to buy renewable energy when all generators – clean or dirty – are connected to the same network. Ferenczi compares this to “trying to drink just the apple juice from a smoothie. It’s impossible when it’s all blended together.”
“When you plug in your appliance at home you’re obviously taking the mix of electricity of the grid and what certificates do which is really important is they provide a really robust accounting mechanism to ensure that when you own the certificate for a megawatt-hour or a unit of energy from a solar farm or a windfarm, there’s no chance that anyone else holds that certificate and the certificate gives you the rights to the environmental attributes, the environmental benefits”.
“The way that certificate schemes work today – and this is true wherever you are in the world – is you match your annual consumption,” he explains. “If you use ten units of energy in the year and you match it with ten units of energy that was produced within a 12-month window, as long as you buy the same number of certificates as you used, then you can declare yourself to be 100 per cent green – 100 per cent renewable energy.”
“Now, this method has made sense for a very long time,” he remarks. “The certificate schemes have been around for 20 years. When there’s no renewables on the grid, you’re always displacing fossil fuel. The timing of the electricity production and consumption wasn’t so important 20 years ago since there were no renewables on the grid.”
And he says schemes such as REGO have played an important role enabling consumers to buy green electricity as up until now they have been the “the only legal mechanism for claiming that your energy comes from renewable sources.”
“But now you fast forward to today where you’ve got much higher levels of renewable penetration, what you need to do is figure out a way to take the grid from say 30 per cent renewables to 100 per cent renewables or carbon-free energy.”
There are periods of both overproduction and scarcity, meaning “timing becomes much more important.” The current certificates do not say exactly when the power was produced so “you can be claiming to use solar energy at night-time, which doesn’t really make much sense.”
“And this is true for everyone,” says Ferenczi. “This is a systemic problem. It’s not the fault of any single player in the market. Everyone’s doing the same thing. It’s just the way these systems work.”
He says the value of certificate schemes as drivers for decarbonisation can be dramatically improved by adding an hourly time stamp so generation and demand can be matched not just over the year but throughout the day: “That’s the big buzzword that people are talking about now – 24/7 carbon-free – but there isn’t a mechanism at the moment that allows you to show where your energy is coming from on an hourly basis and that’s what EnergyTag is providing.”
Ferenczi believes this will have multiple benefits: “We think it will help improve perceptions around renewable energy claims because you’re matching consumption with production in real time. It intuitively makes much more sense.
“It’s going to provide a revenue streams for batteries because will be able to buy these certificates when there’s lots of renewables, when they’re cheap, store the energy and the store the certificates and put them back onto the market when they’re more expensive.
“And it will also pave the way for improved carbon accounting methodologies.”
He says consumers are beginning to examine the sourcing claims made by their suppliers: “I think that it’s great news that there’s increasing demand for renewable energy from consumers, coming from awareness around the problem of climate change, and I think it’s natural that people will start to ask more questions: How do I know my energy is really green? And that’s a good thing. It’s the result of improved consumer engagement.”
Ferenczi says the technologies required for time stamping are already available: “If you want to tag electricity on an hourly basis, it does mean technological advances like smart metering, like software that’s capable of tracking these granular certificates. Luckily, we do now have much higher smart metering penetration. There are several software systems out there that are capable of manging these granular certificates.”
“What’s missing is an independent, third-party organisation to provide the framework, the guidelines, for how to do this that will underpin an industry market for these granular certificates,” he adds.
EnergyTag has unveiled six demonstration projects in Denmark, the Netherlands and Norway, which will seek show these new certificates in action through their full lifecycle from issuance to trade to cancellation: “So for that obviously you need three main ingredients: you need some generation, a renewable asset owner; you need a consumer that wants to source energy 24/7 basis, so someone like a Google or a Microsoft; and then you need the tracking system, the software platform, that manages the certificates.”
He says similar projects are also in the works in the UK but they are not yet ready to make an announcement.
Ferenczi is keen to emphasise that they do not intend to replace schemes like REGO, but rather accelerate their evolution: “There is already demand for these granular certificates and the idea is to create a voluntary market ahead of when the existing certificates schemes – and it think it’s inevitable – all end up having this time stamp on them.”
He welcomes Ofgem’s call for evidence on the subject and hopes that the UK’s departure from the EU will provide an opportunity to reform REGO and “get out in front and lead the way internationally”.
The EU directive which drove the UK to create the scheme also requires that certificates can be traded with other member states. As part of its post-Brexit trade agreement with the EU, the UK government has agreed to continue this arrangement.
Ferenczi says how their framework will deal with cross-border trading is still a matter for debate: “Currently in the European scheme, certificates are valid wherever you are in Europe – even Iceland where’s no interconnection – and so there are a lot of questions over what distance you should be allowed to trade these energy certificates and we’re not dictating that at the moment.
“We’re really just focused on the time stamp to get the temporal matching right, and then there’s a discussion around the locational, the geographic rules of the system.”
“There are some people that think we should limit the trades of certificates to the physical flows of power so to the extent that there is an interconnection and there aren’t bottlenecks.”
“And that’s the whole principle behind this initiative,” he concludes. “It’s about making the certificates more reflective of the real-world availability of renewables. The certificate scheme is a representation of power but it’s going to be more valuable the closer it matches the physical system.”